Morning Comments September 24, 2021

Boxholm harvest

Markets started the day under pressure yesterday, only to recover and trade higher, led mostly by strength in wheat and a general lack of selling overall.

We continue to watch closely what is taking place in China as developments in the Evergrande debacle seem to change by the hour. Yesterday morning we were assured all is well and payments of over 80 million dollars would be met. However yesterday has passed, payments were reportedly missed, and now there are rumors of employees and suppliers going without pay as well.

At this point it appears the Chinese government will step in and take over the company as necessary to protect its citizens but seems to be taking its time in doing so.

In addition to the uncertainty regarding the overall economic climate of the country, we are now starting to hear about factories including soybean crush facilities being shut down in portions of the country to conserve energy after new, more stringent emission standards have been put in place. 

Folks with knowledge of the situation believe up to 20 plants will be shut down for an indefinite amount of time. While this in theory would help to support crush margins due to higher meal and oil prices as supplies dwindle, it is not something that would necessarily support continued growth in soybean demand as a whole at least while plants are shuttered. 

The reduction in available electricity has impacted fertilizer production as well, though government officials there have said they will crack down on anyone speculating on prices or limiting production.

Export sales yesterday did show China is continuing to buy U.S. beans with nearly two thirds of the just over 900,000 tonnes of weekly sales heading that direction. However, there is some concern that with wetter conditions starting to encourage a much earlier start to the planting season than seen a year ago in Brazil, we could see a significant reduction in our export potential-- especially considering the Gulf continues to struggle getting full capacity back online after Ida. 

One large commercial feels we could lose up to 100 million bushels of bean export demand, with others are projecting up to a 6 mmt loss or 220 million bushels. While increasing crush capacity will help to offset some of this, there are analysts in the industry starting to take their new crop carryout projections back up, with one well followed member of the industry worried soy ending stocks could move back up above 300 million bushels in the months ahead. 

Corn export sales were terrible at just over 300,000 tonnes yesterday, most of which are heading to Canada. 

Wheat sales continue to be strong as Russian exporters struggle with potential export quotas and tax increases. Uncertainty in Russia combined with a weaker dollar has allowed wheat to find support, looking to potentially retest old highs here in the short-term.

Looking ahead we will continue to watch developments in China and around the world. We will get updated quarterly stocks numbers next week from the USDA giving us a final insight into just what we finished the crop year with. There are some suggestions that bean carryout could get a touch larger, while corn carryout could shrink a bit more--these ideas of course reflecting what the cash grain market looked like as we worked our way into the final stretch of the former old crop year.

Outside of that, we will likely see some pre-weekend hedging take place as everywhere outside of the far Eastern Corn Belt will likely get back into the fields this weekend.